Opinion: The Tech-Stock Selloff is a Golden Opportunity to Buy Amazon, Apple, Netflix and Tesla

If a technology is fundamentally disruptive enough, that fact will always overwhelm the noise of the day about valuation.

In America, we’re in the business of waiting for rationality these days. In politics, it will be delivered in two years, minus two weeks (unless we’ve all lost our minds). In stocks, the smart course is to figure on it taking six months or even less — which means acting relatively soon to take advantage of it.

This is basically the only reaction to a market that continues to slaughter indiscriminately, and not exactly intelligently. Tuesday’s example is Target TGT down more than 10% after third-quarter earnings missed expectations by 2% while the company raised wages and beat revenue targets. Target, which is still up substantially this year, is no General Electric GE sorting through underperforming businesses and realizing that it wasted so much money on stock buybacks that the ex-icon of America’s Industrial Might has a negative tangible book value.

Or, put it this way: How much sense did it make when the market’s reaction to a weak report on home-builder sentiment and foot traffic at new-home communities was to sell off technology stocks?

But that’s where we are, with the last of the gains this year in the Dow Jones Industrial Average DJIA and the S&P 500 SPX wiped out.

And that means it’s time to follow Uncle Julius.

Julius was Julius Westheimer, who in my own misspent youth was a Baltimore stockbroker and denizen of the Baltimore Sun, where he was a columnist to my cub reporter, and a regular on Wall $treet Week, a public-TV stock-market show produced at Maryland Public TV. Julius was a lovely man, to my 27-year old eye a million years old if he were a day (he was actually 72 when we met) and an uncommonly bright man with a singularly common opinion it would be well to act upon right now.

He was a nut for, and taught me about, dollar-cost averaging.

Dollar-cost averaging is what its name implies — the practice of buying dips to lower the average cost of the shares you own, the better to smooth out rough market rides like we’ve seen in November. Every month, or every paycheck, put the same amount of money into your investments. That gives you more exposure to shares bought when investors are pessimistic, as they are now, and less exposure to shares purchased at short-term peaks like the one the market hit in August..

So how does that apply right now?

It works best if you couple Julius’ approach with lessons I’ve learned in 20 years of tracking tech stocks, the most important of which is to ask yourself whether a company you’re investing in is driving an important, secular change like the advent of online commerce 20 years ago or the not-so-gradual migration of corporate computing to “cloud” services companies like Microsoft MSFT or Amazon.com AMZN today.

Because the one fundamental law of tech investing is that if a technology is fundamentally disruptive enough, that fact will always overwhelm the noise of the day about valuation. And it rarely takes long.

Right now, that basic approach is good news for stocks like Microsoft and Amazon — and for Netflix NFLX and Tesla TSLA. It’s a mixed bag for Facebook FB (since social networking, while fun and amusing, actually does little to boost productivity) and AAPL (mobile phones are obviously a big deal, but may be a maturing market). But even for those, the balance of risks points to continuing to treat those stocks pretty much as you have.

If you like them, there’s not a lot that has happened recently that should change that, especially with the stocks on sale now. (My detailed take on Facebook is another column). And if you didn’t, you were wrong and have been wrong, literally, for years.

Let’s review.

Tesla: Electric cars will still be cheaper than internal-combustion vehicles by about 2025, Bloomberg New Energy Finance says. And they’re faster and much cleaner. CEO Elon Musk will need money for expansion, and is far from the world’s best executive, but a slightly unstable genius is still a genius.

You can worry about the stock’s recent drop from $370 to $340 and wonder if the sky’s falling — if you block out the fundamentals in the last paragraph, and listen to people who thought Tesla wildly overpriced at $100, or have long argued that financial markets that have made Tesla will turn on it with profits at hand. Don’t.

Amazon: If you’re even thinking the word “Christmas” about Amazon, you’re doing it wrong. Even before the recent bust, two-thirds of Amazon’s value came from Amazon Web Services. That cloud computing unit’s market-share gains continue apace, and it’s far more profitable than the retail business.

Netflix: A little tougher because the valuation is high by any standard — it always has been, and the stock still trades for 64 times 2019 estimates even after falling by a third. But the company is revolutionizing the film and TV industries, taking share all over the world, with excellent management and, many analysts think, ample room to raise prices. A less-frantic market will remind itself of those virtues.

Apple: What is it about the recent hand-wringing over maturing iPhone demand that does not sound exactly like the worries over sales in China that made Apple stock sell off in 2015? Great companies — Apple is one —solve problems all the time that are bigger than whether the new iPhones are too expensive. Apple’s shares trade for 13 times earnings. Take out Apple’s cash pile and the rest of the company costs about 10.

At prices like these, your odds are pretty good, I’m confident Julius would have said. (He died in 2005). And it’s a much simpler calculation, for investors whose bonus and job security aren’t measured in three-month increments, than deciphering the latest mumbo jumbo from chartists trying to tell you what will happen next week.